Southwest Airlines, Long a B-School Favorite

For a couple of decades, Southwest Airlines was the business school case study of excellent management and people-focused leadership backed by brand-loyal customers who regularly sang the praises of this low-cost carrier. The module taught on Southwest was always fascinating, emphasizing the airline’s unique for the time recruiting practices, the over-the-top drive to please customers while keeping ticket prices low,  and of course, the iconic leadership of the late Herb Kelleher.

An unprecedented run of earnings growth over the pre-pandemic decades contributed to the perspective that Southwest Airlines was the best-run carrier in an industry that Warren Buffett once suggested, “If a far-sighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”

When It Rains, It Pours, and Freezes and Implodes

All that ended last week in Southwest’s implosion, with 15,816 flights (37% of their schedule) canceled between December 22 and January 1. According to an article in Barron’s Magazine, the second worst-affected airline, Delta, canceled just 7%.

Ouch. I suspect Southwest Airlines will remain a b-school favorite, but for different reasons than the legacy the late Herb Kelleher and unrivaled successes over the years.

In the Barron’s article titled, Southwest Used to Be the Best Run Airline, What Went Wrong (subscription required), a variety of fingers are pointed, including the weather as the primary catalyst, the point-to-point network (versus the more common hub system in use by other airlines) resulting in displaced crews with no way to be moved into position to backfill flights, and of course, technology. The CEO, in response to the technology issue, offered, “It is clear the company needed to double down on existing plans to upgrade its systems.”

A Business System Failure

Deming is spinning in his grave. The entire “business system” used by Southwest Airlines failed spectacularly, and management is responsible for creating the system.

Perhaps the most telling comment comes from the Southwest Airlines Pilots Association: “The holiday meltdown has been blamed on weather that had been forecast five days prior, but this problem began many years ago when the complexity of our network outgrew its ability to withstand meteorological and technological disruptions.”

Five Lessons for Leaders and Managers (at all levels)

1. If you blindly push for growth beyond your constraints, something will happen to cause your system to fail. Guaranteed.

2. Constantly challenge the assumptions that hold together your strategies. Too many assumptions are based on hope. And while Southwest might be LUV, hope is always a bad plan.

3. Leadership demands courage. The organizational leaders that failed to invest in preparing for this inevitable eventuality lacked courage. There is no room in any organization for leaders without courage.

4. In a world where we see how bad things can go almost daily, your risk management strategy is the most important, missing part of your strategy.

5. Never risk your reputation on a strategy and business system built on the hope that the worst won’t occur. While investment firms are scrambling to calculate the impact on the period’s top and bottom lines, the actual cost to Southwest Airlines from this debacle is “unknown and unknowable.” (W. Edwards Deming).

The Bottom Line for Now:

I like and fly the airline, love the people who have delivered excellent service over the years, and am appalled at the inability of top leadership to protect this firm and stakeholders from a situation that a group of fourth graders could have uncovered in a red team analysis

Art's Signature